Cases
Practical case
Aérolis Énergie SA (fictitious entity) builds a biomass boiler, a qualifying asset, from 1 January to 31 December 20X5 and places it in service on 1 January 20X6. It finances it with a specific loan of 1,800,000 EUR (annual effective rate of 8%) drawn on 1 January 20X5 and with an equipment grant of 400,000 EUR. The entity has not fixed the presentation of the grant: it compares deferred income with deduction from cost. The financial statements studied are those of 20X6, the first full year of operation (cumulative effects over 20X5 and 20X6).
Your assignment
Compute the eligible expenditure net of the grant and the eligible borrowing costs; identify the missing information and justify the end date of inclusion; compute the cost of the asset, the annual depreciation and the difference in net effect on profit or loss under each presentation of the grant; record the transactions (case data) and present the effect on the financial statements in each case; state the disclosures; conclude.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Autonomous professional situation
As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.
6 documents: open each one to read it.
Document 1Contract
Statement of the specific loan: 1,800,000 EUR drawn on 1 January 20X5, annual effective rate of 8% (case datum; the effective interest method of IFRS 9 is not covered here); borrowing costs of the construction period (1 January to 31 December 20X5): 144,000 EUR.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Actual borrowing costs of the construction period | €144,000.00 | |
| Investment income on temporary investment | €18,000.00 | |
| Payments on the boiler | €2,300,000.00 | |
| Materials taken from inventories | €100,000.00 | |
| Total expenditure before the grant | €2,400,000.00 | |
| Equipment grant received | €400,000.00 | |
| Planned annual release of the grant | €40,000.00 | |
| Useful life of the boiler | 10 years | |
| Residual value of the boiler | €0.00 | |
| Maintenance offer 20X7 | €21,000.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Statement of the specific loan
Treasury statement
Construction log
Grant agreement
Asset register
Maintenance offer
Organise your work freely: deal with each point, then argue your conclusion.
Task 1Analysis
What is the role of the grant in the inclusion of borrowing costs and in the cost of the asset?
Task 2Calculation
Compute the eligible expenditure net of the grant.
Part 1 · Calculation
Compute the eligible expenditure net of the grant.
Task 3Calculation
Compute the eligible borrowing costs of the specific loan.
Part 1 · Calculation
Compute the eligible borrowing costs of the specific loan.
Task 4Missing information
What information is missing to settle the end of inclusion?
Task 5Professional judgement
On what date does inclusion end? Justify.
Task 6Calculation
Compute the cost of the asset under each presentation of the grant.
Part 1 · Calculation
Compute the cost of the asset under each presentation of the grant.
Result: Cost of the asset with the deduction
Task 7Calculation
Compute the annual depreciation under each presentation.
Part 1 · Calculation
Compute the annual depreciation under each presentation.
Result: Annual depreciation with the deduction
Task 8Calculation
Compute the difference in net effect on profit or loss between the two presentations.
Part 1 · Calculation
Compute the difference in net effect on profit or loss between the two presentations.
Task 9Journal entries
Record the borrowing costs and the investment income, common to both presentations.
Part 1 · Journal entry · Journal entries
Entry 1 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 10Journal entries
Record the grant, the transfer, the depreciation and the release with deferred income.
Part 1 · Journal entry · Journal entries
Entry 1 of 4
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 4
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 4
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 4 · Journal entry · Journal entries
Entry 4 of 4
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 11Journal entries
Record the grant, the transfer and the depreciation with the deduction.
Part 1 · Journal entry · Journal entries
Entry 1 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 12Effects on the financial statements
What is the effect on the financial statements with deferred income?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 13Effects on the financial statements
What is the effect on the financial statements with the deduction?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 14Analysis
Which disclosures should be given on the borrowing costs included?
Task 15Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 24).
Document this file
These working papers use the data and results of this case.
Normative references